Rise in Soybean Prices due to Adverse Weather Conditions in South America

Soybean

Brazil

Published Mar 8, 2021

The price of soybeans on the Chicago Stock Exchange traded higher as traders anticipated a short-term supply crisis due to adverse weather in some regions of South America. With warm and dry conditions in Argentina expected to continue during the next weeks and incessant delayed rains in Brazil that have slowed down the harvest, operators have become aware of possible yield losses and anticipate a significant reduction in the supply.

U.S. soybean futures settled higher as there was adverse weather across Argentina and Brazil, two of the leading producers of soybeans globally. Both of the countries have had a decrease in their forecasted output for the upcoming harvest. However, the rise in the futures market price also responds to the fact that China has increased its purchases from the U.S, causing a decrease in the supply of soybeans in the U.S market.

Hot and dry weather expected to put stress on Argentinian soy

The Buenos Aires Grains Exchange said it could cut its harvest forecast for 2020/21 soy production in Argentina, the world's top soy meal exporter if it does not rain sufficiently in crucial producing areas over the weeks ahead. The heat in Argentina continues to be a major threat for soybean farmers, particularly in the Buenos Aires province, where a significant draught has left extreme dry conditions.

Argentina is the third-largest producer of soybean globally, with 55.26 MT produced in 2019, which was considered an excellent recovering year from 2018. According to the USDA office in Argentina, the country had forecasted production of 48 MT for the 2020/21 harvest, which is now officially decreased to 47.5 MT after several growing areas started to experienced stress caused by the dry weather.

Argentina is the primary global exporter of oil and soybean flour and the third global exporter of non-process soybean grains. A big part of their production output is allocated to satisfy their industrial and process consumption, making their export supply dependant on their national demand.

Rains Delay Brazil Soy Harvest

In Brazil, the world's leading soybean exporter, the meteorological firm Maxar, officially stated that it expects the rains, which have delayed the soybean harvest, to continue through the second week of March. While the rainfall is exceptionally beneficial to the soybean crop’s early and middle-stage development, it hinders the maturity of late-stage planted beans, which is why the rain at this stage will delay the harvest.

In 2019, Brazil was the leading producer of soybean worldwide, with 11,427 MT accounting for 34.25% of the global production share. Despite the harvest delay, Brazil expects to produce an all-time high of 131.7 MT of soybeans in 2020/21. However, if rains continue to impact soybean harvesting through March, crop quality could decrease significantly due to excessive moisture, leading to lower production.

Source: FAOSTAT, Tridge

Futures Market price respond

Weather conditions reinforced previous supply concerns by market operators. U.S. soybean milling and export are projected to reduce U.S. oilseed inventories to just a nine and a half-day supply before the next harvest in North America. According to agricultural consultancies, farmers in the South American nations had been able to harvest only 1.9% of the projected acreage as of January 28th, compared with 8.9% last year.

For this reason, traded soybean futures rose to USD 14.20 per bushel, 12.5 cents on the dollar from the previous price, and the most active contract reached USD 14.4575 a bushel, the highest price since June 2014.

Global Impact for Soybean Industry

Both South American countries compete with the U.S for sales to importers such as China, which is the larger buyer of soybean, accounting for 46% of the global import value. China represented a USD 6.6 billion trade in 2019 for the U.S., being the second largest supplier (19%) behind Brazil, which was the leading supplier with USD 23 billion sales (65%). As for Argentina, the Chinese market represented a USD 3.5 billion trade and was the third-largest supplier for soybeans to China.

These concerns about South American supply expect to prompt more Chinese purchases from the U.S. The U.S. Department of Agriculture will update its estimates on global supplies in a monthly report; however, reducing soybean stocks is already projected, with a short-term impact on the milling, processing, and export industries.

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